Transcript Real GDP Growth – U.S.

Outlook for the Americas:
Are the Clouds Lifting?
Presented to:
Global Insight Outlook Seminar
Atlanta, Georgia
April 29, 2003
Presented by:
Sara Johnson
Managing Director,
Global Macroeconomics Group
Copyright © 2003 Global Insight, Inc.
The Iraq Cloud Has Lifted; What Next?
•
Success in Iraq resolves a major uncertainty, enabling
investment, staffing, and travel plans to move forward.
•
The United States remains the region’s growth engine.
Fiscal stimulus and an upturn in capital spending will
boost U.S. growth from 2.6% this year to 4.2% in 2004.
•
South America’s political instability threatens its economic
progress. Extremely competitive currencies will drive
near-term growth in Argentina and Brazil.
•
•
U.S. dollar depreciation will generally help the Americas,
with the exception of Canada.
The 34-nation Free Trade Area of the Americas agreement
will move forward, with the goal of 2006 enforcement.
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2
North America Produces 91% of Americas’ GDP …
(Percent of Americas’ GDP, 2002)
South
Mexico
America
Canada
5%
Central
7%
6%
America &
Caribbean
2%
United States
80%
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3
… with Half of the Region’s Population
(Percent of Americas’ Population, 2002)
Caribbean
4% Central
America
4%
South
America
42%
United States
34%
Mexico
12%
Canada
4%
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4
The U.S. and Canada Are Leading the Recovery
5
(Percent change, real GDP)
4
3
2
1
0
-1
-2
United States
Mexico
Canada
2001
2002
2003
2004
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Other Americas
2005
5
U.S. Recovery Forces Are in Place
•
•
•
•
•
•
•
Expansionary monetary and fiscal policies
Resilient consumer spending
End of the high-tech bust
Lean inventories
Strong productivity growth
Low inflation, falling oil prices
A successful outcome in Iraq sets the stage for solid
growth in late 2003 and 2004.
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6
Reasons for Caution
•
•
•
•
•
•
U.S. companies are still very risk averse
Employment losses through March
Low capacity utilization
Household financial stress
Weak export markets
SARS and geopolitical risks
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7
The U.S. Expansion Will Strengthen
8
(Percent change, annual rate)
(Percent)
7
6
6
4
5
2
4
0
3
-2
2
1998
1999
2000
2001
2002
Real GDP Growth
2003
2004
2005
2006
Unemployment Rate
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8
Shifting Sources of Growth in the U.S. Economy
1998
2001
2002
2003
2004
4.28
0.25
2.45
2.60
4.18
Consumption
3.18
1.67
2.15
1.61
2.67
Structures
Equip. &
Software
Residential
0.21
-0.05
-0.52
-0.15
0.19
1.27
-0.61
-0.15
0.42
0.86
0.32
0.01
0.17
0.10
-0.11
Federal
-0.05
0.29
0.47
0.69
0.19
State & Local
0.39
0.36
0.35
0.02
0.05
Net Trade
-1.20
-0.18
-0.66
-0.14
-0.16
GDP Growth (%)
Contributions
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9
Price and Wage Inflation Will Stay Mild
6
5
4
3
2
1
0
-1
-2
-3
(Year-over-year percent change)
1998
1999
2000
CPI
2001
2002
Producer Prices
2003
2004
2005
2006
Employment Cost Index
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10
The Federal Reserve Will Start to Raise
Interest Rates in December 2003
10
(Percent)
8
6
4
2
0
1998
1999
2000
Federal Funds
2001
2002
2003
2004
10-Year Treasury Yield
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2005
2006
Mortgage Rate
11
Stocks Prices Are Beginning to Recover
1600
1400
1200
1000
800
600
400
200
0
16000
14000
12000
10000
8000
6000
4000
2000
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
S&P 500
Wilshire 5000
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12
Real Consumer Spending and Confidence
7
(Annual percent change, 1996$)
(Michigan Index, 1967=1.0)
110
6
105
5
100
4
95
3
90
2
85
1
80
0
75
1998
1999
2000
2001
2002
2003
Real Consumption Growth
2004
2005
2006
Consumer Sentiment
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13
Home-Building Will Decrease in 2003-05
(Housing starts, millions of units)
2.4
2.0
1.6
1.2
0.8
0.4
0.0
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Single-Family
Multi-Family
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14
Manufacturing Capacity Utilization Is Low
(Percent)
90
1960-2002 average = 81.2
85
80
75
70
65
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
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15
An Uneven Recovery in Business Investment
(Percent change, 1996 dollars)
30
20
10
0
-10
-20
Structures
Computers
2000
2001
Software
2002
Communic.
Equipment
2003
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Other
Equipment
2004
16
A Surge in Federal Spending: Government
Purchases of Goods and Services
9
(Year-over-year percent change)
6
3
0
-3
-6
1990
1992
1994
1996
1998
Federal
2000
2002
2004
2006
State & Local
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17
Government Budgets Are Back in Deficit
(Billions of dollars, fiscal years)
300
200
100
0
-100
-200
-300
-400
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Federal
State & Local
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18
Real U.S. Exports and Imports Reflect the
Business Cycle and Exchange Rates
16
(Year-over-year percent change)
12
8
4
0
-4
-8
-12
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Real Exports
Real Imports
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19
A Healthy Canadian Economy
•
•
•
•
•
Home-building, consumption, and public investment led
Canada’s solid 3.4% growth in 2002.
Business investment is recovering in 2003, but auto and
housing markets are cooling off a bit.
To curb inflation, the Bank of Canada is raising interest
rates; its key rate will reach 5% in mid-2004.
High relative interest rates and a trade surplus will boost
the Canadian dollar to 70 U.S. cents in 2004.
Canada’s failure to support the Iraq war effort has chilled
relations with the United States.
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20
Canada’s Real GDP Growth
(Percent change, 1997 dollars)
6
5
4
3
2
1
0
-1
-2
1986
1989
1992
1995
Canada
1998
2001
2004
2007
United States
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21
Mexico: Integration Under NAFTA
•
•
•
•
•
Mexico’s sluggish recovery is led by consumer spending
and construction activity.
Manufacturing remains weak, awaiting a pick-up in the U.S.
economy and maquiladora exports.
Capital inflows have supported the peso in recent years,
hurting competitiveness against China and other emerging
markets. The peso is expected to depreciate.
Mexico has achieved remarkable macroeconomic stability
under NAFTA. Cautious monetary policies have lowered
inflation to around 5%.
President Fox’s structural reforms are stalled in the face of
PRI opposition; July congressional elections are pivotal.
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22
Mexico’s Inflation Has Subsided as a Result of
Cautious Monetary Policies
(Consumer price index, percent change)
35
30
25
20
15
10
5
0
1990
1992
1994
1996
1998
2000
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2002
2004
2006
23
Mexico’s Long-Term Economic Growth Is 4-5%
8
(Percent change, real GDP)
6
4
2
0
-2
1986
1989
1992
1995
Mexico
1998
2001
2004
2007
United States
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24
Brazil Has a Difficult Balancing Act
•
•
•
•
•
Brazil faces conflicting challenges—revive growth, subdue
inflation, meet debt payments, and improve social
conditions and income distribution.
Growth in agricultural and industrial exports is reviving the
economy, but consumption and investment remain weak.
Capital flight sent the real to new lows in 2002, driving up
inflation and interest rates. The Selic rate is 26.5%.
A large, inefficient government sector is a drag on the
economy; taxes take 36% of GDP.
Foreign capital—essential for strong growth—will return if
economic policies are sound. President Lula da Silva aims
to enact pension and tax reforms this year.
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25
Brazil’s Economy Gradually Improves
8
(Percent change, real GDP)
6
4
2
0
-2
-4
1986
1989
1992
1995
Brazil
1998
2001
2004
2007
South America
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26
Argentina Is Still Risky
•
•
•
•
•
Argentina’s economy is recovering from its free fall, but
risks remain very high in a fragile political environment.
After a 70% drop in 2002, the peso has appreciated 20%
in recent months, temporarily cooling inflation.
Import substitution is boosting domestic production and
generating a current account surplus.
The liberation of the corralón (a freeze on time deposits)
will provide a needed stimulus to consumer spending.
Debt default will limit growth for years, since investors
have abandoned the country. It will take nearly a decade
for real per capita GDP to regain its 1998 peak.
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27
Argentina and Venezuela: Long Roads to Recovery
(Percent change, real GDP)
12
8
4
0
-4
-8
-12
1990
1992
1994
1996
1998
Argentina
2000
2002
2004
2006
Venezuela
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28
Venezuela in Crisis
•
•
•
•
•
Venezuela’s political turmoil has done lasting damage to
PDVSA, business investment, and the economy.
After an 8.9% contraction in 2002, real GDP is expected to
decrease 10% this year.
Venezuela suspended foreign currency trading in January,
effectively paralyzing imports. We expect a 30% bolívar
depreciation and 40% CPI inflation in the next 12 months.
A huge fiscal deficit (7% of GDP) will limit the government’s
ability to finance social programs, exacerbating divisions.
We expect that the Chavez presidency will end by
referendum in late 2003 or early 2004.
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29
Colombia, Chile, and Peru
•
Colombia’s economic growth is held back by intensified
guerilla violence. President Uribe initiated an expansion of
military and police forces, along with major fiscal reforms.
•
Chile’s economy will accelerate in 2003 and 2004 as the
world economy, copper prices, and exports strengthen.
•
•
•
Signing of the U.S.-Chile Free Trade Agreement is delayed.
Peru achieved 5% growth in 2002, thanks to rising copper,
zinc, and gold production. Consumer spending and
construction are now taking over as engines of growth.
The halt of President Toledo’s privatization program due to
public protests will discourage foreign investment.
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30
Real GDP Growth in South America
(Percent change)
6
5
4
3
2
1
0
Bolivia
Chile
2001
Colombia
2002
2003
Ecuador
2004
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Peru
2005
31
Caribbean Economies Await Tourism Revival
•
The number of international visitors to the Caribbean will
decline for a third consecutive year. A strengthening U.S.
economy will spark a strong rebound in 2004.
•
The Dominican Republic will lead the region’s growth,
thanks to inflows of foreign investment, rising exports from
the free-trade zone, and an expanding tourism industry.
•
Puerto Rico’s manufacturing is declining as the U.S.
phases out tax-free repatriation of profits. Public transit
and port infrastructure projects are driving growth.
•
•
Trade sanctions and weakness in its tourism, sugar, and
nickel industries will undermine Cuba’s economy.
Trinidad & Tobago is benefiting from investments to
develop its oil and gas reserves.
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32
International Tourism Recoveries Delayed
16
(Percent change in international visitor arrivals)
12
8
4
0
-4
-8
1996
1998
North America
2000
2002
Caribbean
2004
2006
Central & South America
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33
Real GDP Growth in the Caribbean
6
(Real GDP, percent change)
5
4
3
2
1
0
-1
Bahamas
Dominican
Republic
Jamaica
2001
2003
2002
Puerto Rico
2004
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Trinidad &
Tobago
2005
34
Central America Depends on Exports
•
•
•
•
•
Central America is struggling with a decline in tourism and
weak prices for exports of coffee, sugar, and bananas.
Costa Rica has the region’s most attractive investment
environment--an established democracy, well-educated
population, and a stable economy.
The U.S. has de-certified Guatemala for failure to counter
drug trafficking and official corruption. A high crime rate
will deter private investment.
El Salvador sells two-thirds of its exports to the United
States and depends on rising remittances from migrants.
Panama’s growth will pick up in the second half of 2003 as
canal traffic and re-exports from the free trade zone recover.
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35
Real GDP Growth in Central America
(Real GDP, percent change)
6
5
4
3
2
1
0
Costa Rica
El Salvador
2001
Guatemala
2002
2003
Honduras
2004
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Panama
2005
36
Global Insight’s Medium-Term Risk Ratings
(Five-year risk aggregates)
High score = high risk
United States
Canada
Puerto Rico
Costa Rica
Panama
Mexico
Dominican Rep.
0
20
40
Financial Risk
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60
80
100
Business Risk
37
Global Insight’s Medium-Term Risk Ratings
(Five-year risk aggregates)
High score = high risk
Chile
Peru
Colombia
Ecuador
Brazil
Venezuela
Argentina
0
20
40
Financial Risk
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60
80
100
Business Risk
38